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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I am in the process of setting on an insurance claim. Will

Resolved Question:

I am in the process of setting on an auto insurance claim. Will I be taxed on the settlement? All or part? medical expenses before my health insurance discounted rate was $35,273.
discounted to $19104. Can you tell me what the fair settlement should be? I still have neck issues which cause sleep issues. But not taking treatment.
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

We need to be more précised what are items the settlement substitutes.

Typically, an accident settlement contains two types of claims:

-- compensation for damaged property and

-- personal injury award.

See for reference IRS publication 525 page 31 - http://www.irs.gov/pub/irs-pdf/p525.pdf

Casualty insurance and other reimbursements. You generally should not report these reimbursements on your return unless you are figuring gain or loss from the casualty or theft.

So - any portion of your settlement paid for repairs to your car or that is less than your basis - is not included into taxable income.

 

see also on the same page:

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

 

However - if your settlement include any other compensations - such as interest, attorney fees, compensation for lost wages, punitive award, etc - these are taxable.

 

Let me know if you need any help.

 

Customer: replied 6 years ago.
Did you have any advise on settlement amount?
Expert:  Lev replied 6 years ago.

There is no simple solution because each situation is so different.

The accident settlement value usually consists of following elements:
-- medical bills
-- lost income
-- pain and suffering damages

 

In most situation - it is relatively simple to fund out your medical expenses and lost income - these are out-of-pocket expenses (so-called "specials").

 

If there is no serious or permanent injuries and the fault is clear - the accident settlement value is estimates by multiplying "specials" by the number between 1 1/2 and 4, depending on the circumstances of your case.

 

For example, if your medical bills and lost wages were $35,273(specials).

Depending on the other facts in the case, the accident settlement value of your claim is somewhere between $35,273*1.5 and $35,273*4 - or between $59910 and $141,090.

 

Let me know if you need any help.

 

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